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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
January 28, 2009
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The Fatal Flanks Of A Credit Money System:

A credit money system reaches the dead end of its own inflation when not even zero rates of interest can entice the general public to borrow even more credit money and then spend it into circulation. When that point is reached, a credit money system can only contract. When that takes place, the total quantity of money in use also contracts - it DEFLATES. The system has reached the limits to debt and therefore to credit. For governments then to storm into the breach as they are now doing and to replace the general public as the borrowers of last resort simply loads Treasuries with the debts that the public is no longer willing to carry. At the end of that road lies the bankruptcy of all the Treasuries.

The other flank, the truly fatal one, is where the general public decides that there is no safe place for their money and decides to go into CASH. Today, "cash" is, of course, the national paper money. When that happens, and it would only take a large bank failure or two, then the fractional reserve system swings into reverse. Now, somebody walks into a bank and demands that the $1000 he has in his account be given to him in cash. But the bank only holds $100 in reserves, having earlier lent the $900 out to somebody else. Faced with this demand, the bank has two choices. It can try to recall some earlier loans or it can take the $900 directly out of its own capital. A mass demand for cash would not only cause a massive deflation of loans already outstanding as these were recalled, it could also cause many banks to run out of capital entirely. That would bankrupt the bank and leave all the remaining depositors standing and staring at the now closed doors, unable to get their money.

These are the reasons why some morbid wits who do understand the situation have said that under any fractional reserve system, only a fraction of the public get their money out, the rest get nothing….

It's Banana Republic Time:

What is happening at present is tragic and rather hilarious. Incontinent governments are engaging in the futile exercise of borrowing what the public is no longer willing to borrow, spending the money so borrowed, and then handing the bill to their own taxpayers. Deflations, contractions in the total quantity of the means of payment, this time from the credit money side of the monetary system, cannot be treated this way. In deflations, the most critical thing to strive for economically is to NOT have governments stand in the way of the markets. It is essential that the price mechanism find the real clearing levels where goods and services again change hands. At all times, prices have economic work to do. In deflations where the total means of payment has contracted in volume, there is no more urgent task than to let all prices fall to their clearing levels. Until they do, no economy can revive, let alone prosper.

Borrowing And Spending The Civil Economy Into Extinction:

Governments borrowing insane amounts of money and then spending it into circulation is an attempt to keep current prices at near their present levels. Such actions are, in effect, intended to act as a version of price support mechanisms. Deficit spending with the aim of holding prices above the level that the broader deflation calls for leads to a situation in which goods don't clear their markets. The same goes for labour, which means that willing workers get laid off or cannot even find a job. The whole process is cruel in the extreme. What governments in fact can and SHOULD do is to first cut their own spending to leave more money in the private and civil economy so that it can better deal with the deflation. Then, and only then, governments should cut taxes - to a lesser degree than the spending cuts - to lower the budget deficit and the pressure on the money and credit markets….

"More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets." So said Fed Chief Bernanke in a speech at the London School of Economics. Here, in bold words, is proof of the economic incomprehension of events at the highest levels, the US Fed itself.

Guarantees are one thing. They depend upon the liquid assets of the issuer of the guarantee. But if the one making the guarantee is in debt to the tune of TRILLIONS and running a deficit also to the tune of TRILLIONS per year, such a guarantee should look at least doubtful. Capital, and injections of same, are entirely different. Capital is PRODUCTIVE plant and tools. Capital is NOT the monetary value of such plants and tools. This is what Fed Chief Bernanke has reversed in his own mind! Clearly, from the words out of his own mouth, he thinks that if he injects a huge sum of money in the US financial system, then in an act of spontaneous generation, a matching quantity of new plant and tools on their factory floors will spring forth! This is not economics. This is magic, with Mr Bernanke as the magician in chief. If what Bernanke thinks is so WAS so, then one could plant a pile of $US Dollars and watch wealth spring forth!

President Obama wants to deficit spend, to spend what does not exist on what is still here. Deficit spending is a contradiction in terms and of facts. One can only spend what IS here.

Ó 2009 – The Privateer

(reproduced with permission)


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